3. I: Nature of Managerial Acc:
◆ Users/Decision Makers
◆ Purpose of Info
◆ Flexibility of Practice
◆ Timeliness of Info
◆ Time Dimension
◆ Focus of Info
◆ Nature of Info
12. I: Lean Business Model
◆ Customer Orientation
◆ expect company to offer right product or service
at right time and right price
◆ all business is worked around the customer
14. I: Classification by Behavior
◆ Fixed Cost
◆ Doesn't change per unit based on volume
◆ Doesn't change overall based on volume
◆ Variable Cost
◆ Doesn't change per unit based on volume
◆ Changes overall based on volume
15. I: Classification by Tracing
◆ Cost object
◆ Thing to trace
◆ Direct Cost
◆ Traceable to single cost object
◆ Indirect cost
◆ Can't be traced to single cost object
◆ May be traced to all cost objects
◆ May be traced to severall cost objects.
17. I: Classification by Relevance
◆ Sunk Cost
◆ Always irrelevant
◆ Out-of-pocket cost
◆ Sometimes relevant
◆ Opportunity Cost
◆ What you lose (one thing) for taking another
thing - sometimes relevant
27. III: Process Order Costing
◆ EUP = Equivalent Units of Production
◆ Solving EUP: some % DM + some % DL
= Process 01. Then some % DM + some
% DL = Process 02. Then take "some
%" and add all "some %"'s together to
get EUP.
28. III: EUP, Cont'd
◆ If there are no BWIP and no EWIP, then
take "Total cost assigned to Process
(DM, DL, OH)" and divide that by "Total
number of units started and ended this
period" to get EUP
32. IV: ABC Method
◆ Identify (ID) activities and cost pools
(see previous slide)
◆ Trace OH costs to cost pools
◆ Determine activity rate
◆ Assign OH costs to cost objects
33. IV: Disadvantages of ABC
◆ Cost to implement and maintain ABC
systems is extremely high for most
industries other than computer and auto
mfg.
◆ Uncertainty with decision making
remains even after full-scale
implementation of ABC systems
34. IV: Advantages of ABC
◆ More accurate OH cost allocation
◆ More effective OH cost control
◆ Focus on relevant factors
◆ Better mgt of activities
40. V: Contribution Margin (CM)
◆ CM per unit = Sales price per unit - Total
VC per unit
◆ CM Ratio (CMR) = CM per unit / Sales
price per unit
41. V: Breaking Even
◆ Breakeven Point (BEP) in units = FC /
CM per unit
◆ BEP in $$ = FC / CMR
42. V: Target Aftertax Income
◆ Dollar sales at target aftertax income =
(FC + target pretax income) / CMR
◆ Unit sales at target aftertax income =
(FC + target pretax income) / CM per
unit
◆ Margin of safety (MoS :: %) = (expected
sales - BEP in $$) / expected sales
◆ Revised BEP in $$ = Revised FC /
Revised CMR
43. V: Composite Units
◆ Composite Unit = EG Basic + Home
Premium + Business + Ultimate (Win
Vista here...) = EG some composite
value
◆ Do same for sales & VC
◆ take sales - VC = CM per composite unit
◆ BEP in composite units = FC / CM per
composite unit
46. VI: Absorption VS Variable Costing
◆ Absorption (ABS): Fixed overhead
included (IE DM + DL + VOH + FOH) in
Product Cost
◆ Variable (VAR): Fixed overhead not
included (IE DM + DL + VOH) in Product
Cost
47. VI: Comparison, Inc. St.'s
ABS Inc St
Revenues
Sales
Expenses
COGS
Selling Exp.
Adm Exp.
Net Income (Loss)
VAR Inc St
Sales
Variable Expenses
CM
Fixed Expenses
Net Income (Loss)
54. VIII: Cost Variances
❖ Cost variance = actual cost - standard
cost
❖ actual cost = actual price/rate * actual
qty/hrs
❖ standard cost = standard "/" * standard
"/"
55. VIII: Cost Var Cont'd
❖ Price variance = [actual price - std price]
x actual qty
❖ Quantity variance = [actual qty - std qty]
x std price
❖ Rate var (labor) = [actual rate - std rate]
x actual hrs
❖ Efficiency var (labor) = [actual hrs - std
hrs] x std rate
56. VIII: Cost Var Cont'd
❖ Spending var (OH) = actual overhead -/
+ budgeted overhead
❖ Efficiency var (OH) = applied overhead -/
+ budgeted overhead
60. XI: Net Present Value
❖ Take the annual cash flows and multiply
with a total "value of I" factor
❖ first, add up all the "value of I" factors
into a total "value of I" factor
61. XI: Simple Rate of Return
❖ SRR = Annual aftertax NI(L) / Annual
Avg. Investment
❖ Annual avg. investment = (Beg. book
value + End. book value) / 2
62. XI: Internal Rate of Return
❖ Take amt. invested / net cash flows =
factor of an annuity of I
❖ take factor and look up in "PV of an
annuity of I" table to find IRR